Saturday, June 20, 2015

On the Fact that Banking, Mortgages, and Housing Were the Three Most Regulated Sectors of the American Economy and Yet this is Exactly Where the Problems Erupted Leading Up to the Financial Collapse

A total coinkydink, I gather. By which I mean I'm totally pushing the bullshit from the Right that OVER regulation caused the collapse. Because, when it comes to Libertarian lies concerning regulation of the financial sector being bad, I'm a total stooge for our plutocratic overlords.

For example, Cato says Gramm-Leach-Bliley (the law that repealed the New Deal-era Glass-Steagall) and allowed "the mixing of investment and commercial banking" was not responsible for the financial crisis. Cato says too much regulation is to blame. They say "Congress should repeal the Community Reinvestment Act".

And, given the fact that Cato is Libertarian Think Tank that I frequently reference on my other blog, Contra O'Reilly (although I usually don't say who I'm quoting), I completely agree with them. The blame, in my opinion, should be heaped upon government (via the CRA and Fannie and Freddie) and on poor people who could not afford homes being given loans they would never be able to pay back.

So what if this is total bullplop?

...the false narrative [is] that the financial crisis was caused by... government regulators [who] used the Community Reinvestment Act (CRA) to force banks to make loans to undeserving poor people and that Fannie Mae and Freddie Mac purchased doomed subprime mortgage backed securities to meet the affordable housing goals. This [so goes the false narrative] was the main cause of the crisis.

The argument that CRA and the affordable housing goals caused the crisis have been debunked time and time... again. The CRA has been in place since 1977, while subprime lending only skyrocketed in the 2000s. Even if one concentrates on the changes in enforcement of the act in 1995, the Act does nothing to explain the massive uptick in subprime lending concentrated from 2004 to 2006. What's more, most subprime lenders weren't banks and therefore weren't even subject to CRA. That's why only 6 percent of the high-cost mortgages at the time (a proxy for subprime) could even potentially qualify for CRA credit.

Similarly, for most of the housing boom, Fannie and Freddie were on the sidelines due to their fairly strict underwriting requirements. By the time Fannie and Freddie lowered their standards in 2006 to buy riskier products, they were too late to the game to cause the subprime frenzy. Moreover, while they also bought private subprime mortgage backed securities for their investment portfolio – an inarguably bad idea – those purchases did little to meet the housing goals. For the most part, Fannie and Freddie-guaranteed loans have performed, and are still performing, remarkably better than the toxic products pioneered by subprime lenders.

The real causes of the financial crisis were predatory mortgage products, out-of-control securitization and derivatives markets, and the failure of government regulators to crack down on the massive risk being taken by our nation's financial institutions. (Excerpt from No, Lending To Poor People Did Not Cause The Financial Crisis by David Sanchez. ThinkProgress 8/15/2013).

What this article points out is that I, Willis Hart, am totally full of shit! That does not matter to me, as I simply do not care what "Think Regress" says (even though this article accurately recounts the real causes of the financial crisis).

Because lazy low-skilled losers earning low wages (all they deserve) who wanted a home without earning it and government regulators "forcing" banks to loan them money they could never pay back is the better narrative, IMO.

Because it lets the real culprits totally off the hook! And, given that I am a stooge for the plutocrats who benefited from the crisis, I absolutely do NOT want them to be assigned any blame (even though they deserve it). Which is why I eagerly buy into the BS about OVER regulation being responsible for the financial crisis. Because if we were to crack down and increase the regulations... well, then the plutocrats couldn't do it again (make tons of money by duping poor people into signing up for predatory mortgages).

And that would be bad. Very bad.

Byline: This stoogish commentary was authored by the true-believing stooge Willis "I Love Strawmen" Hart. Purveyor of blind stoogery. LLIN-166.

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